Schrödinger's Download: Whether Or Not An iTunes Music Sale Is A 'Sale' Depends On Who's Suing

from the that-cat-is-dead dept

Steve Worona has a great post pointing out how the record labels have clear cognitive dissonance (the ability to hold two totally conflicting ideas in your head at the same time -- and argue for both of them) when it comes to the question of whether or not an iTunes purchase represents a "sale." He puts forth three examples of such cognitive dissonance in the legal context, with the final one being taken from two recent legal cases involving major record labels:

Example 1, the case of the kettle. As summarized by the Manhattan Institute for Policy Research, “Readers who’ve been to law school may remember the chestnut known as the ‘Case of the Kettle’. A man is charged with borrowing a kettle and breaking it. His reply is that, first, he never borrowed it; second, it was already broken when he borrowed it; third, it was intact when he returned it.”

Example 3, digital downloads. Two recent court cases hinge on how the sale of an MP3 download compares to the sale of a conventional physical recording, known as a “phonorecord” in Copyright-speak. In one case, the singer Eminem demanded that Universal Music Group calculate his royalties for downloads based on the higher rate for licensed material instead of the lower rate for phonorecord sales. UMG refused, arguing that the sale of an MP3 download was the same as a phonorecord sale. In the second case, EMI filed suit against ReDigi, a company that allows purchasers of MP3 downloads to resell those files under Copyright law’s “first sale” doctrine. EMI argued that the MP3 files were not phonorecords and thus not subject to first sale.

What's being discussed here, of course, are two cases that we've covered. The Eminem case involved whether or not an iTunes purchase counted as a "sale" like a CD, where there was a very low royalty rate (probably around 15%), or as a "license" like for a movie, where the royalty rate was more like 50%. Universal argued stringently, and continues to argue in a series of follow-up cases, that an iTunes purchase is just like a CD purchase, and the much lower rates apply. However, in the ReDigi case -- where the company is trying to argue that if an iTunes purchase is just like a sale, then clearly the "first sale doctrine" applies and those files can be resold -- EMI, which is in the process of being acquired by Universal, argues that an iTunes sale is a license, and thus there's no first sale.

Worona sums it up beautifully:

Putting these two arguments together, we see the music industry imagining transactions where what’s sold is a phonorecord but what’s purchased isn’t.

To me this seems like the Schrödinger's Cat of copyright law. According to the record labels, if we're talking about it from the seller's perspective, it's a sale. But the second you flip the equation and look at it from the buyer's perspective, it's a license. The cat is simultaneously dead and alive. Either the major labels are full of it... or they're breaking new ground in quantum physics. I'll assume it's the former, rather than the latter.

"it"

And of course, those of us playing along at home have known for quite some time that the "it" they are full of is greed, pure and simple greed. The record labels will take whatever position is likely to get them the highest net profit in the given situation. They will additionally state that the given situation is unlike any other situation that has ever existed or will ever exist and thus, they are able to change their position in each situation at will.

Given these facts, the media industry should also be aware, that we're on to them. We see their hypocrisy for what it is and we are starting to bypass them to fund the artists directly wherever possible. Say hi to the dinosaurs when you get to your final destination.

Of course

It's very simple:
1. Copyright law's purpose is to ensure a steady income stream to the record labels
2. "Sales" are better when it's the record label doing the selling
3. "Licenses" are better when that's what the purchaser purchases

The only way these can all be true if the record label sells it to you, but you license it to them. So clearly that must be what happens.

Was that so hard ?

On a serious note, I'd love to see their opponents in the two cases bring the record label's lawyers in the other case to the stand...

Re: Of course

This isn't just a Big Media thing though

Its how Big Business works. It was stated clearly at the start of the '80s in Risky Business: you have to be willing to do whatever it takes to make a profit however illegal, everytime, thus its only when Tom Cruise tries to bribe his way into Harvard Business School that Harvard Business School deems him able to enter Harvard. To have any morals in business is a bad thing. Thats why its so impressive watching some of these new Tech companies trying to 'do good'.

It's the same issue I pointed out a few days back (and you ignored outright).

First sale rights may be dead in a digital world. Licensing can (and does) restrict resale by making the license non-transferable.

Taking it further, if it is a license (and Eminem has proven this in court), then obtaining the material without a license would be a form of fraud. Oh, oh! You guys aren't just playing the copyright law game anymore, now you are into contract law and such. Nasty!

Welcome to your worst nightmare - a valid way under existing laws to go after pirating sites legally, without having to prove copyright. Nice!

Cognitive dissonance is not what you think. It is a dysphoria caused by holding conflicting ideas simultaneously. The word you were searching for is simply hypocrisy. No need to gussy it up.

Philosophically and linguistically, two different and even opposing statements can both be true, if they are evaluated in different contexts. This can and does often cause cognitive dissonance in the feeble-minded, but that is not relevant to the state of mind of RIAA lawyers.

Re:

Pretty much. It makes more sense to treat digital transactions as licenses rather than sales because while the files they send you are discrete (resembling the sale of a phonorecord for purposes of a market transaction), they're not subject to the exhaustion that underpins the utility of the first sale doctrine. The Eminem case was more a contractual quirk than anything, a case where language had yet to catch up to market realities.

They are a license and a sale...

...but not in the order the labels portray them.

The royalty rate is based on the sale (or license) to the retailer (e.g. iTunes). They claim that this is a sale, but it's clearly not. They deliver a single master copy to iTunes who reproduce it on demand for their customers.

But the consumer, however, just downloads a single copy without the same right to duplicate that iTunes had. This looks a lot more like a sale.

Maybe the consumer is just a licensee as well. I think not, but that can at least be reasonably debated. But IF the label is "selling" to iTunes, then there's no way that the consumer is doing anything but buying that same object from iTunes.

Re: Re: Re:

Re: Re:

It's the worst nightmare because it would clear up all the confusion: Piracy would be clearly illegal, as a matter of contract law. If a party has the right to license, and all sales are licenses, all pirated copies are illegal by definition, with no requirement to prove intent to distribute, commercial, or otherwise.

Re:

Actually, you'd still have to prove a copyright infringement. Licenses would actually make it more difficult to determine what is and is not infringing behavior, as some of the rights are transferred durning a licensing.

Only after a proven infringement could contract law come up, as there is no proof that the contract has been violated without both proof of infringement and proof that the party in question agreed to a contract forbidding infringement.

Re: Re: Re:

If a party has the right to license, and all sales are licenses, all pirated copies are illegal by definition, with no requirement to prove intent to distribute, commercial, or otherwise.

How are all sales being licensed related to all copies being illegal without using copyright law? The act of copying is not the same as the act of a sale. I can copy all day long and not have a sale involved. With copyright law not all copies are illegal, so merely being in possession of a copy without a license is not illegal. Eliminate copyright law, and being in possession of a copy becomes even less illegal.

Trying to rely on contract law instead of copyright law is only going to hurt your cause. In that case, in addition to it not being illegal to have a copy, you would also lose the criminal trials against pirates, as I've never heard of a criminal violation of contract law.

Re: They are a license and a sale...

I think this is a point many people don't consider and it's a valid point.

EMI sells iTunes a CD with the permissions to sell licensed copies of it to me. THIS is how it can be both a license and a sale and really isn't no different than Ford selling a car to Avis and then Avis renting it to me.

Of course, the difference is that all parties understand that renting the car is *renting* and is temporary, but digital downloads are not thought of that way by consumers.

Re: Re: Re: Re:

Fair enough. UMG and EMI are not the same. I admitted that much at the start. They are however two companies in that have agreed to merge pending approval from a regulatory committee. They are still much more closely aligned than Techdirt and the Washington Post.

My critism isn't your observation that UMG and EMI are different companies, but your analogy does not capture how closely involved the two companies are.

Re: Re: Re: Re: Re:

Re: Re: They are a license and a sale...

Nope, doesn't work. If it's a sale, your permissions stop when it leaves your hands. I can destroy the car, buy a car from a different brand and make a frankencar, share the car with my frinds every single day (either by carpooling or passing it around, etc.)

Re: Re: Re:

"It's the worst nightmare because it would clear up all the confusion: Piracy would be clearly illegal, as a matter of contract law."

There is no confusion on this point. Copyright violation (piracy) is already clearly illegal. And even so, I fail to see how making things very clear is a "nightmare".

"If a party has the right to license, and all sales are licenses, all pirated copies are illegal by definition"

Actually, no. All pirated copies would be evidence that someone violated the licensing agreement, true. But those copies would not be "illegal" in the sense that the person in possession of them is doing anything that is in violation of the law.

If I get a pirated copy of something from a licensee, the licensee violated the license agreement, but I didn't, as I never entered into such a contractual relationship. I am not in violation of anything.

I don't buy my music from the major labels. I buy it from Google Music. Can it be a "sale" from the label to Google and then a license from Google to me with some of the license terms being dictated via contract between Google and the label?

Well

I hope Eminem or his lawyers read this:

Why not set up your OWN re-selling business selling eminem songs.

This way, you have TWO lawsuits running concurrently and can safely and legally use the evidence from each to show how the record labels are and hate artists and just want to steal as much as they can from them.

Then, since eminem is still popular he could write a song about how to screw over the record labels by buying direct from the artist.....

Re: Re: Re: Re: Re: Re:

Thanks for the clarification... I was really worried since I masnic all the time!

Masnicking: the act of being a damned-dirty-fatboy-freetarded grifter

Masnicing: the art the art of making a sandwich so exquisitely perfect and delicious that nearby babies cease to cry, small dogs stop yapping, and a nearby Lamar Smith or Chris Dodd will actually get a momentary glimpse of reality. Side effects known to include transcendence to a higher plane of existence, a realization that mint chocolate chip is the most superior of all ice cream flavors, and possibly being nominated for GQ's sexiest man of the year (Applies to female masnicers just the same).

Re: Re: Re:

From my dealings with the US legal system over the years (and the grey hairs that it causes) I am positive that the 'ruling' you are talking about is by one circuit court only and though telling does not really have any bearing on what a court may decide in the ReDigi case other than some guidance, and that's a big maybe.

To make a binding decision wouldn't all of this have to go to your Supreme court anyway or at least to appellate courts if the Supreme knocks back hearing under cert?

Re: Re: Re:

If you commit a crime (illegal act) under Contract law it could maybe void the contract, though that would be up to the parties to decide or a civil court dependent on the terms within that contract,

If a contract has been created for the specific purpose of committing an illegal (criminal) act then the contract is by default voided.

If you acquire something and you don't have the license to go with it does not make it an illegal act, and it doesn't even make it a forfeiture of contract since you were never a party to the contract in the beginning (no acceptance nor offer). The ONLY thing you might be up for is a civil copyright breach though their are numerous lawful reasons why you wouldn't be.

Re: That’s Not “Cognitive Dissonance”, that’s “Doublethink”

SMH

If the record labels want the artists to stand united with them, they should really try compensating them properly. Paying an artist 50% for the sale/license of their music after recouping any advance should sound like a great deal.

Think about it. The label invested and got that investment back and now gets 50% of the revenue for doing absolutely NOTHING. They have no costs associated with the digital sales. Everything they get is pure profit. How do they react? "But but but... that's not enough, we are a label."

Cognitive dissonance is the unease you feel when you hold contradictory thoughts in your mind. I think the word you are ACTUALLY looking for is psycopathy, because that is what you need to have to carry on regardless of cognitive dissonance.

shroedinger's cat and music

The problem is the legal system. It allows litigants to pursue "alternative theories", that is, if one lie doesn't work, you can use another.
As an attorney, I believe the legal system needs to be fixed. The underlying thinking even seeps into the IP system, and the results are always bad; encouraging deceit.

Re: Re: Re: Re: Re:

They just synthesize the positions. It's legally a "license" for the purposes of the actual end-user transaction (since it doesn't make sense to place exhaustion rights on a file that can be infinitely replicated), but contractually a "sale" for the purposes of calculating an artist's royalty (since it resembles a phonorecord sale more than, say, a traditional "license" for use in a movie). There's no real conflict between the two if the artist's contract is properly drafted to reflect the latter notion. Eminem's wasn't.

Re: Looking for elementary music particles

To me this seems like the Schrödinger's Cat of copyright law. According to the record labels, if we're talking about it from the seller's perspective, it's a sale. But the second you flip the equation and look at it from the buyer's perspective, it's a license. The cat is simultaneously dead and alive. Either the major labels are full of it...

Malformed RSS feed (because of this article's title)

Hey, remember months ago when a band or something had an umlaut in its name, and you put the name in the title, and it broke the RSS feed? Well, it's happened again. Still no idea why RSS is broken by special characters like that...
...Anyway, if you could change that "ö" into an "o", it'd fix everything (same as last time). Thanks in advance!